Mid-day Monday, March 16, 2020, the level of the stock
market measured by the S&P 500 is back to last Thursday, down about a third in 20 days. Erasing 11 years of gains.
Since its peak on February 19, 2020, the markets have
declined $11.5 trillion to about $23.8 trillion as measured by the Russell 3000
index which accounts for 98% of the value of US stocks.
That elimination of a third of the value of the market is
startling:
·
It accounts for all of the gain since Donald
Trump was elected president in 2016.
·
In order to get back from a 33% drop to the high
of mid-February, the value will have to increase by 50%.
· It is easy to blame the drop on the coronavirus.
In my opinion, that is not the case, but if it were, the $11.5 trillion caused
by 61 deaths (in the US) would mean that each death caused a loss of $188
billion. EACH! A bit out-sized, don't ya think?
o
The bull market was 11 years old, a record
o
It was time for a major correction
o
Russia and Saudi Arabia got into a tiff and
caused oil prices to drop by nearly 50% (now that’s important!!)
China is no longer experiencing rapid spread of the disease.
Many have discussed how China’s authoritarianism delayed disclosure and
increased the severity of the problem, as was the case in Iran. There is some
evidence that efforts in the US will contain the disease sooner than later, but
the economic damage will take a long time to solve.
While we are at the process of finding the bright side of a
disease and the upside of a huge market downside, remember 1665-1667. That was
when Isaac Newton was self-quarantined due to the bubonic plague that killed
approximately one-third of the population of London.
According to an excellent article by Jeff Jacoby in the
Boston Globe,
That period was the most intellectually productive of Newton’s
life and maybe the most productive period ever in anyone’s life...ever.
For example, in that time Newton discovered and described the nature of light (that it is composed of various colors), the apple fell and inspired him to correctly describe the nature of gravity, and he invented calculus.
